Making sense of mobile payments in general, and Russia in particular

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Over the past few decades, people have taken to credit and debit cards as a simpler and more secure means of transferring money. Now, we’re beginning to see a new wave of change as companies look for a way to use mobile phones for the purpose of wirelessly transferring money.

In 2012 Gartner estimated 60 percent increase of the global mobile payments to $172 billion, yet the up-and-coming NFC technology accounts for an insignificant amount of total payments, most of which are conducted via SMS, web and wap.

In Russia, the trust to the online payments, much less mobile payments is pretty low, and cash is still king. Online store accept cash on delivery in over 80 percent of the cases, according to the Ozon CEO Maelle Gavet, whilst 92 percent of bank card transactions include withdrawal of salary in cash. Electronic payments are conducted using e-wallets where users deposit cash at their account at multiple terminals, and use the wallet to make electronic payments. So where does this leave mobile payments?

Russian MOBI.Money is one of the older-style mobile payment providers in Russia, using SMS-and Web- type mobile payments. It claims to have captured 90 percent of the mobile market in Russia, having served 13 million customers, and offering 4000+ products and services.

Rather than futuristic (yet arguably useful) single-touch mobile payments conducted at checkout, Mobi.Money is used in Russia to complete mundane payments of utility bills and even speeding tickets linking the payment to the mobile phone rather than a bank account. This is not surprising: only 37 percent of Russians have a smart phone, whilst a majority – 51 percent still use feature phones, according to Nielsen. These are probably easier to carry out using a mobile phone (even if it means SMS payment) than going to a bank and completing transfer manually. The main point here is that all payments will be reflected on a mobile phone bill. In 2009, VTB Capitalpurchased a controlling stake (51%) in MOBI.money.

The leading player in e-wallet space QIWI Wallet has recently announced its partnership with Visa, and is now offering similar type payments via a mobile app, only linked to the QIWI wallet account rather than a mobile phone bill. QIWI wallet can be topped up with cash, bank transfer, bank money, AND transfers from a mobile phone account, which creates a massive threat for Mobi.Money especially since global partnership with Visa means that the payments will be accepted by any merchant that accepts Visa cards.

Despite having a user base, neither of mobile payment companies are anywhere close to introducing NFC payments to the Russian consumers.

First of all, the debate whether or not NFC will take off, is still open, as its adoption is hampered by the low installed base of both NFC readers and NFC-enabled phones (Apple made a decision not to include NFC technology in the iPhone 5).

Samsung ships Galaxy phones enabled with NFC chips, and for the owners of the phones without NFC technology, Barclays bank in the UK is experimenting with sticking a NFC-containing PayTag onto the phone to enable NFC payments.

The proponent of NFC, Google turned its Google Wallet into an NFC payment service, available in a small number of large stores but requiring an installation of the NFC reader by retailers.

An opponent of NFC, Paypal launched an alternative pilot in the UK, testing a barcode-generating app InStore that enables a handful of clothing retailers use an existing barcode scanner to take a payment from the mobile phone.

Square, that has started off providing small businesses with low-cost card-reading attachment to the mobile device, and is now serving 2 million retailers, is not keen on NFC. Instead it offers its own Wallet that works with its terminals just like Google Wallet works with NFC reader. Yet, in case of Square, the retailer can identify the buyer through its photo and name. To lure more retailers into its network, Square began offering new services, such as business analytics, staff management and others.

NFC has a strong lobby, and it is quite possible that for the large retail chains the installation of the new-generation of the cash registers will mean a wider adoption of NFC technology. POS terminal providers may look for new features or modify their business models to compete with Square, Payleven and their multiple competitors taking a big bite of their market with devices priced at $10.

For example, Russian Synqera backed by iFree Group has recently released a NFC-enabled terminal which in addition of accepting payments, integrates face recognition, social media integration and other features which can help retailers engage with consumers in new ways. The company does not disclose price of an individual unit, although it is probably hard to compete with the $10 price tag of the Square attachment.

Should the new-generation NFC-enabled POS see fast adoption, there is no doubt that the both Qiwi and Mobi.Money will be well-positioned to leverage their user base and their trust to expand into the POS NFC-type payments. If any of the Russian clones of Square, such as Life-Pay, Pay-me, iPay and 2can, backed by Almaz Capital will repeat Square success and penetrate Russian market before NFC takes off, the game will change for the existing mobile payment providers.

There is also a possibility, that Square-type technology, Paypal bar-code reader as well as NFC payments can coexist within one smart phone and can be used depending on what retailer use as a POS terminal (which in Russia may for a long time remain a traditional cash register).

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Natasha Starkell

TwitterLinkedInFacebook Google+ Natasha Starkell is the founder and CEO of GoalEurope, advisory firm focusing on technology investment and software development in Russia and Eastern Europe. Prior to starting GoalEurope she has worked in the field of finance, mergers and acquisitions, corporate strategy and offshore outsourcing at Unisys Corporation in Switzerland and United Kingdom. She has an MBA degree from London Business School. She speaks Russian, English and German. She lives in Northern Germany.